Key Points:

• Existing-home sales for August are expected to increase 0.5 percent from July’s pace of sales. If realized, this would mark two consecutive monthly increases. 
  
  
• While house-buying power is nearly 4 percent greater than last month, and 10 percent above a year ago, it remains 7 percent below the two-year, pre-pandemic average.
  
  
• Even if rates dip to 6 percent, fewer than 30 percent of renters nationally could afford the median-priced home.

Finally, we get to share some good news for the housing market – we project existing-home sales will increase modestly again in August, marking two straight months of sales growth. The better news is that we expect the increase in existing-home sales is likely to continue. The projection is from our Existing-Home Sales Outlook Report, which we use to ‘nowcast’ existing-home sales based on the historical relationship between sales, demographic trends, house-buying power, and the prevailing financial and economic conditions. 

Another month of declining mortgage rates contributed to the month-over month increase in our August nowcast, but sales remain lower than one year ago. Lower mortgage rates and increasing inventory levels are bringing some buyers off the sidelines, but not enough to meaningfully increase sales. 
Demographic trends indicate that we have plenty of would-be buyers on the sidelines waiting to jump in. Yet, both affordability and inventory levels remain historically low. The recent decline in mortgage rates will entice a small group of buyers off the sidelines, but many more are waiting for the payment-to-paycheck calculation to pencil out. 

“The recent decline in mortgage rates will entice a small group of buyers off the sidelines, but many more are waiting for the payment-to-paycheck calculation to pencil out.”

$13,000 Boost in House-Buying Power in August Not Enough to Spur Larger Increase in

Existing-Sales

The 30-year, fixed mortgage rate declined by 0.35 percentage points to 6.5 percent in August and has fallen 1.1 percentage points since its most recent peak in October 2023. Lower mortgage rates have a dual impact on the housing market – improving affordability for potential home buyers and easing the rate lock-in effect for existing homeowners. 

Holding income constant, a 0.35 percentage point monthly decline in mortgage rates boosted house-buying power by $13,000 for the median-income household. The decline in rates resulted in just over a 1 percentage point increase in the share of renters who can afford the median-priced existing home nationally, from just over 23 percent to 24.5 percent. While house-buying power is nearly 4 percent greater than last month, and 10 percent above a year ago, it remains 7 percent below the two-year, pre-pandemic average. 

On the supply side, according to Zillow data, active inventory in July was 4 percent higher than last month and 23 percent higher than one year ago. However, inventory remains 27 percent lower than the pre-pandemic, two-year average. That’s because, while the recent decline in mortgage rates may encourage some existing homeowners to sell, 86 percent of mortgaged homes have a rate below 6 percent, so most homeowners remain rate-locked in.

Progress, Not Perfection

If mortgage rates continue to ease throughout the remainder of 2024, it will bring additional progress, but not perfection, to the existing-home market. Incremental improvements in mortgage rates will spur some buyers off the sidelines and entice more sellers to consider parting with their super-low mortgage rates. But, even if rates dip to 6 percent, fewer than 30 percent of renters could afford the median-priced home as of July. Moreover, the bulk of existing homeowners will still be rate locked-in. While two months of increasing existing-home sales does not yet make a trend, it signals clear progress and there’s reason for optimism in the months ahead. 

August 2024 Existing-Home Sales Outlook Highlights

For the month of August, First American updated its Existing-Home Sales Outlook Report to show that:

• Existing-home sales for August are expected to increase 0.5 percent from July’s pace of sales and decrease 9.5 percent compared with the predicted pace of sales a year ago.
  
  
• The largest contributors to the projected monthly change are: increased house-buying power (+0.4 percentage points), an easing of the rate lock-in effect (+0.4 percentage points), and a strong economy (+0.3 percentage points).
  
  

Methodology

Our Existing-Home Sales Outlook Report ‘nowcasts’ existing-home sales, which include single-family homes, townhomes, condominiums, and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales, U.S. demographic trends, house-buying power, and the prevailing financial and economic conditions, as well as momentum, a weight assigned to past values. Please note that the Existing-Home Sales Outlook Report is based on assumptions about demographic, economic and financial conditions. Actual values may differ from those projected. Recent existing-home sales estimates are subject to revision to reflect the most up-to-date information available on the economy, housing market and financial conditions.